Sucheta Dalal :Gaps evident in tracking market manipulation
Sucheta Dalal

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Gaps evident in tracking market manipulation  

Jun 12, 2006

The Indian stock markets closed last week with a record 5% bounce back—514 points on the Sensex and a whopping 150 points on the Nifty. Incredibly enough, the surge of buying was strong enough to drown bankers’ surprise and worries over the interest rate hike and its impact on retail lending. In fact, market sources report that public sector banks were active buyers in the secondary market on Friday. Several central banks, including those in India, South Korea, Turkey and Europe, raised interest rates on Thursday. But so powerful was the pullback in Indian stock prices that even the whispers about mismanagement of funds at a large private sector mutual fund were smothered by surging prices, despite the apparent credibility of these reports. The biggest gainers on Friday were companies controlled by the Ambani siblings—Reliance Industries was up 11% and among ADAG companies, Reliance Energy rose 13% and Reliance Communications by a hefty 14%.


The rise was, indeed, widely expected after last week’s excessive slide in Indian stocks, which fared rather worse than other declining global capital markets, even though the long-term investment outlook for India continues to remain strongly bullish. A cursory look at international news reports reveals no consensus, even among experts, about the direction in which any of the markets are headed in the near term. Investors and analysts are desperately seeking clues in policy decisions or central bank pronouncements about interest rate trends, inflation and economic growth. But the pundits, too, are more often wrong than right. That is probably why investors and brokers were relieved but not especially elated by Friday’s bounce-back and few are willing to bet on a lasting turnaround when a third of the stocks declined, even when the Sensex pulled back an astonishing 514 points.


Friday’s rally brought welcome relief and if it holds good on Monday, then retail investors, day traders and small speculators who provided liquidity to the markets may make a comeback. Many of these had been barred from taking fresh positions by their brokers, because of the panic over margin payments.


An interesting fact that comes out of the 26% decline in the benchmark Sensex since May 10 is that the robustness of risk-management systems in India now allows regulators to remain fairly cut-off from the mayhem on the ground. So long as margins are paid and settlements occur on time, the regulators have little interest in asking uncomfortable questions. What is worse, the machinations of fund managers and large market operators are easily hidden and/or covered up with very little investigation.


For instance, there seems little chance of any serious investigation into reports that a maverick fund manager, known for his rather risky or adventurous trading calls, may have run up huge speculative losses in stock and commodity futures’ markets. The regulators have no clue about these rumours, although market circles report specific investment companies involved in dubious transactions. What is clear is that there will be no investigation unless there is a major default.


• The system is such that regulators are fairly aloof from ground mayhem

• They seem to have no clue to regular rumours on market manipulation

• Regulators must be willing to track, collaborate on mkt intelligence


This is emerging as a recurring pattern in both stock and commodity markets. Consequently, it was the intelligence agencies who reported Ketan Parekh’s large-scale operations in the commodities market, not the regulators. And although Parekh has been banned from the capital markets for 14 long years, he has openly repaid Rs 169 crore to Madhavpura Mercantile Cooperative Bank without having to explain his income.


Kolkata broker Ashok Poddar, absconding from the police for years, is reportedly a big trader again; this fact, too, was reported to the finance ministry by the Intelligence Bureau. Yet, there is no concerted attempt to track him. Another aggressive scamster, now based in London, is cashing in on the wonderful anonymity provided by Participatory Notes (PNs), by offering to set up overseas trading accounts for resident Indians capable of transferring $0.25 million dollars abroad. The commodities futures markets are now the more attractive playing field for the most notorious capital market players, as its regulatory systems and infrastructure are still being developed.


Some day soon, there will be a big price to be paid if regulators are unwilling to gather market intelligence and collaborate to track down increasingly brazen market manipulation.



-- Sucheta Dalal